High-end developers back in the spotlight as buyer sentiment improves

Demand and supply dynamics are improving.

After years of languishing sales, high-end developers are finally headed back to the spotlight as buyer sentiment continues to improve.

According to BNP Paribas, demand and supply dynamics have improved considerably in recent years, as the high-end premium over mass-market prices has narrowed considerably.

“While operating environment remains challenging for high end developers, we expect outlook to improve for high end segment, given better valuations, yields and demand-supply dynamics,” said BNP Paribas.

Rental yields of high-end properties are also attractive now. In 2Q15, high-end offered higher yields of 3.30%, above mass market’s 2.97%.

It is also above current mortgage rate of 2%. Factors pressuring rents include slower economy, rising supply and softening demand from foreign expat leasing activities. 

“In this down-cycle, URA data suggests that high-end prices have fallen by 7.5% since their peak in 2013, versus mass market’s 5.2%. The high-end premium over mass market has also narrowed. Meanwhile, the high-end discount to HK high-end prices has widened. Both changes in spread offer opportunities for arbitrage, in our view,” the report added.